Setting User Charges for Public Services: Policies and Practice at the Asian Development Bank

Abstract

The Asian Development Bank’s (ADB) position on user charges is established in a variety of official documents. A review of those documents shows that ADB believes tariffs should be simple, transparent, and predictable; ensure financial sustainability without subsidies, with a few exceptions; help the poor satisfy their basic needs, if other means are not feasible; promote efficient use of resources; and avoid cross-subsidies. A review of ADB’s practice in tariff setting shows that ADB pays the most attention to financial issues, and to avoiding financial hardship for the poor. Economic issues receive little or no attention. The reviews suggest that to improve both policies and practice, ADB should define and interpret some parts of ADB’s position; provide technical guidance on efficiency and analyzing subsidies; focus on delivering services to the poor, rather than merely avoiding financial hardship; and highlight the value-added of ADB’s involvement, by clearly and thoroughly presenting information on tariff setting in ADB-supported projects. These improvements would clarify and emphasize ADB’s position, and make applying ADB’s position both easier and more consistent.